The euro and yen both fell against the US dollar as foreign exchange markets priced the energy exposure gap between import-dependent economies and a United States that produces the majority of its own oil. The move reflects a structural asymmetry built into this conflict's economics: the countries absorbing the heaviest energy costs are not the countries making the military decisions.
Japan imports approximately 90% of its primary energy, with a significant share of its LNG supply either originating in or transiting through The Gulf. The yen, already under pressure from the Bank of Japan's interest rate gap with the Federal Reserve, faces a widening trade deficit as the energy import bill rises. Europe's exposure is more direct. The EU spent four years replacing Russian pipeline gas with LNG — Qatar became one of its largest suppliers. TTF nearly doubling to over €60/MWh feeds straight into consumer prices and industrial costs. Euronews reported UK economists warning of higher inflation, depressed growth, and increased public debt if prices hold. The European Central Bank, which had been easing rates since mid-2024, may face the same stagflationary bind that paralysed monetary policy in 2022: energy-driven inflation in a contracting economy, where rate rises and rate cuts are both wrong.
The dollar's strength creates a feedback loop. Oil and LNG are priced in dollars. A stronger dollar means Japan and the eurozone pay more in local currency for every barrel and every cargo, amplifying the inflationary impact beyond the commodity price increase itself. Brent crude at $85–90 per barrel costs European refiners materially more in euro terms than the headline figure suggests. The pattern echoes the 1973–74 oil crisis, when dollar-denominated energy prices accelerated economic divergence between the US and its import-dependent allies — though the US was then far more reliant on foreign oil than it is today.
The political dimension is harder to price. European and Japanese households are absorbing the economic consequences of a conflict their governments did not initiate and, in Europe's case, have conspicuously declined to endorse — the E3 statement condemned Iran's attacks on Gulf states but said nothing about US–Israeli strikes on Iran. That diplomatic positioning — alignment with Washington's framing without full endorsement of its campaign — becomes harder to sustain as petrol prices rise and currencies weaken. The market is registering an economic fact. Whether it becomes a political one depends on duration.
